Questions Through the Eyes of White House Economists

The Economic Report of the President, compiled annually by the White House’s Council of Economic Advisers, offers a mix of uplifting messages about the U.S. economy’s prospects (U-S-A! U-S-A!) alongside a sobering analysis of the nation’s persistent economic problems. It’s a 410-page tome , worth its place on your nightstand regardless of the party occupying the White House. While you prepare to dig in, we’ve plucked five of the most interesting economic questions answered by the latest report. (You can find the CEA members’ favorite charts in their own blog post.)

CEA: “The prevalence of persons unemployed for 26 weeks or less has returned to its pre-recession average (4.2 percent of the labor force in January 2014, same as the average from 2001 to 2007), but the long-term unemployment rate is more than twice what it was during the pre-crisis years (2.3 percent in January 2014 compared with 1.0 percent on average from 2001 to 2007). Reducing long-term unemployment presents a major challenge because these individuals may face stigmatization from employers or experience skill deterioration.”

2What’s the relationship between poverty and widening income inequality? Share on Twitter

Income distribution can have a “profound” effect on poverty.

CEA: “Economic growth is an important determinant of poverty … as long as the gains are shared with those in the bottom of the income distribution. When growth fails to benefit the bottom, it cannot play a role in eradicating poverty. As such, the distri­bution of income can have a profound impact on the level of poverty. While the real economy grew at an annual rate of about 2.1 percent during the 1970s and 1980s, since 1980 economic growth has not produced the “rising tide” heralded by President Kennedy, as rising inequality left incomes at the bottom relatively unchanged. … Incomes in the top 20 percent of the income distribution rose dramatically until the 2000s and are about 50 percent higher today than in 1973. By contrast, real household incomes in the bottom 60 percent of the income distribution stagnated until the mid-1990s expansion, and today are little changed from the business cycle peak in 1973. A large group of poverty scholars have pointed to this rise in inequal­ity as a leading explanation for the lack of progress in reducing poverty since 1980.”

CEA: “In the decades following World War II, productivity improvements translated relatively automatically into compensation increases for families across the income spectrum. But starting in the 1970s, inequality began its relentless rise and productivity growth became increasingly disconnected from compensation growth for typical families. The trends in inequality are related to the trends in productivity, as well as to other broad economic trends. Some of the technological changes over the past three decades, especially those related to information technology, have raised the rela­tive reward to skills obtained through advanced academic study. Thus, the slowing growth of educational attainment both potentially slows innovation and increases inequality by raising the returns to the most highly educated workers. Although expanding the size of markets through globalization can help increase the productivity of the economy, it can also create challenges for inequality.”

CEA: “Gasoline demand per capita rose through the early 2000s and plateaued in the mid-2000s before dropping substantially during the recession. As the economy has recovered, however, gasoline demand per capita has continued to fall. Some of this continued decline in gasoline demand stems from the relatively high real gasoline prices shown in Figure 2-21, but that is only a partial explanation. Increasing fuel efficiency brought about by Federal fuel efficiency standards also played a role; and, in 2012, the Administration finalized fuel economy standards that, together with the Administration’s first round of standards, will nearly double the fuel economy of light-duty vehicles to the equivalent of 54.5 miles per gal­lon by the 2025 model year from 2010 levels. Further, beginning in model year 2014, medium- and heavy-duty trucks must meet new energy efficiency standards as well, which will increase their fuel efficiency by 10 to 20 percent by 2018.”

CEA: “The 2007-09 recession and its aftermath have likely played some role in the recent slowdown in health costs, and this portion of the slowdown is likely to fade as the economic recovery continues. However, several pieces of evidence imply that the slowdown in health care cost growth is more than just an artifact of the 2007-09 recession: something has changed. The fact that the health cost slowdown has persisted even as the economy is recov­ering; the fact that it is reflected in health care prices, not just utilization; and, the fact that it has also shown up in Medicare, which is more insulated from economic trends, all imply that the current slowdown is the result of more than just the recession and its aftermath. Rather, much of the slow­down appears to reflect “structural” changes in the U.S. health care system, suggesting that at least part of this trend—although it is uncertain how much—is likely to persist.”

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